Lessons from Airbnb about business in the sharing economy

Editor's note: Airbnb's Molly Turner will be speaking about the sharing economy at the upcoming GreenBiz Forum in San Francisco on Feb. 26-28.

GreenBiz editor and reporter Kristine Wong spoke with Turner about how the company that created a way for individuals to rent out their residences to short-term visitors has become one of the fastest-growing startups around. At the same time, the sharing economy must take on regulatory challenges that may threaten its growth.

Turner, Airbnb's director of public policy, is an urban planner by training with a background in sustainable tourism development. Before joining Airbnb, she consulted with cities on how to develop a more economically, socially and environmentally sustainable form of tourism.

Kristine Wong: Tell us the story of how Airbnb got off the ground and how it’s grown since then.

Molly Turner: Airbnb was founded by two friends: Joe Gebbia and Brian Chesky, who moved to San Francisco to start a company. Joe actually wanted to start a sustainable business; he’s a serial entrepreneur and started a few other businesses that didn’t take off. They weren’t sure what kind of business to start, though. When Brian moved in with Joe, their landlord raised the rent and they couldn’t pay it. They were wracking their brains on how to pay. It turned out a conference was in town, so they thought ‘Why don’t we blow up some air beds and rent them out to conference goers?’ They ended up getting three conference goers, cooked them breakfast, had a great time and made enough money for their rent. Then they realized they were an airbed and breakfast. So they brought on a third co-founder, Nate Blecharczyk, as the technical brains of the operation. They launched at the 2008 Democratic National Convention in Denver. Since there was not enough room in the city for all the people traveling there, the mayor was thinking about opening up a park so people could camp.

We’ve been growing exponentially over the past two years. It’s just unbelievable. As a two-sided marketplace, we grow because a guest might go home and become a host -- and the hosts earn enough to become a guest. We quadrupled in size in the span of a year. The amazing thing about this model is that it meets the needs of both sides of the marketplace. The hosts are looking for a way to stay afloat and rent their homes to make additional money. Travelers today are looking for more affordable travel – people are looking to have experiences that are more authentic, more local and off the beaten path. There’s a lot of demand for that. Those are the reasons why we've grown without having to do a lot of marketing.

KW: How does Airbnb fit into the realm of sustainable business?

MT: It contributes to social, economic and environmental sustainability. Airbnb does an amazing job on all three of those forms. First of all, I really think we’re socially sustainable because a lot of forms of tourism are created from scratch – Disneyland or Las Vegas, for example, built a destination from scratch. Or you might have a historical context like Chinatown but you’re packaging it for tourists in a nice and neat tidy way, which does not provide as an authentic experience as possible. That has social impacts on people who live there as well as the indigenous culture there.

Airbnb is economically sustainable. We commissioned an economic study in San Francisco and are working on one in New York. There are surprising findings – first is our impact on our community and our hosts, who have real economic incentives to use Airbnb. They can’t afford to stay there [in their homes] because of rising rents or [their homes] are underwater. Whether they’ve just graduated from college or are empty nesters or are retired on fixed incomes, Airbnb enables them to use the assets they already own. Our hosts told us they’re using this to pay for their living expenses. Tourism is the No. 1 industry in a lot of cities, especially San Francisco, and usually tourism dollars are spent on international hotel and retail chains in downtown. With Airbnb, you’re spreading that money to neighborhoods and small locally owned businesses in higher proportions. For example, someone in the Haight Ashbury buying coffee and used clothes rather than spending at the Gap in Union Square of downtown San Francisco. This way, more of every tourist dollar spent stays in the local economy.

Environmentally, maybe someday we’ll never have to build another hotel. San Francisco hasn’t built a new hotel room in nine years and I don’t think it’s a coincidence that we’ve been successful during that time. There’s no way San Francisco can host America’s Cup and other events such as the Olympics without Airbnb. We hope this model of shared space using underutilized existing space will prevent urban sprawl and everything will be used day and night and on the weekend. For example, I will feel guilty if my apartment is empty when I go out of town. That is a great side effect for the environment. We’re a 7x7 [square mile] city and can’t build enough infrastructure fast enough. Maybe we don’t want to.

KW: What are your responsibilities as Airbnb’s director of policy?

MT: I have to advocate for the communities in the city where the concept might be new and not fit in to regulatory frameworks that they have, and also look for a new form of tourism. For example, getting a convention center and expanding it is not the best way to do tourism in regards to return on investment. So we work with cities on pilot projects on how can you develop a form of tourism which has less of a footprint and brings in money at a local level.

KW:That brings up a lot of questions regarding how the sharing economy has faced challenges regarding regulatory violations, such as what happened with Lyft, SideCar and Uber. In some places like San Francisco and New York City, short-term apartment stays of less than one month are illegal. How is Airbnb addressing this?

MT: San Francisco Supervisor David Chiu is still working on legislation and we’re hopeful it will be introduced soon. Short-term rentals are not new. It’s not the second home that these people are renting, it’s the homes they live in for most of the year and it’s a different regulatory framework than a traditional short-term rental. We’re educating the community and policymakers regarding how Airbnb in this activity works, and we do our best to educate our community about the myriad regulations.

We’ve seen that a lot of other folks in San Francisco City Hall are open minded and are interested in being the first real sharing economy ever. The reason the San Francisco mayor created the Sharing Economy Working Group [in 2012] was because he recognized benefits to the local economy. In San Francisco, these laws [for short-term rentals] were written a long time ago and may not recognize this activity for what it is, so my colleagues and I are trying to create a more streamlined regulatory process so our clients don’t need to hire lawyers. Other cities are grappling with this as well.

KW: How do you think regulations should be shaped in regards to supporting the sharing economy?

MT: It shouldn’t be approached from siloed perspectives. But the problem with the sharing economy is while the ethos is the same whether sharing your home or car, the regulatory context is drastically different and has emerged from its own industry – industries that have nothing to do with each other. For example, look at peer-to-peer home sharing and ride sharing. The regulatory solutions are all different, so not one overall sharing policy will work. With the mayor expressing support for this movement, we know a host of questions has come up and we hope to figure out answers to these questions not in a siloed manner. It’s the best approach we can hope for.

We’re already seeing this in Seoul, Korea where the mayor announced the sharing economy is at the top of his priority list. It’s really just an attitude of open mindedness. The sharing economy is just now starting to gain recognition – it’s still in early adopter stage.

KW: There has been criticism that Airbnb rentals have taken away from the availability of long-term rentals for residents in San Francisco – and that they’ve also been driving up rents.

MT: That’s a concern I hear more and more particularly about the city of San Francisco. I’m a renter myself and struggle to find affordable housing. As someone who cares very deeply about affordable housing, that comment really worries me. Airbnb is not having an adverse effect on the affordability and availability of housing in San Francisco. We have always known that’s not the case -- we have asked some housing economists to take a look and confirm that short-term rentals are not having an effect on the affordability of city housing. We hope to release the study in a few weeks.

Airbnb hosts are renting out their own homes, or they’re renting out their rooms. For example, while their kids are at college, people may rent their empty rooms out to visitors. And while the majority of Airbnb users are travellers, we see that the majority are looking for short-term housing. Or, they’re a consultant and just in town for three months. Because Airbnb users rent the out homes they are living in, they are not taking housing off the market. If they were doing this 365 days a year, that would be one thing, but on average they’re just doing it a few weeks a year.

KW: Has Airbnb formally worked with any businesses?

MT: We haven’t done the traditional partnership model. We get calls all the time to be the official housing conference for conferences. But our model is decentralized – it’s two-sided and the inventory is flexible and grows or changes without us. We’ve built enough tools on our platform so that we don’t need to be the middleman – so it's easy enough for a big business conference to use our site using a tool we’ve created called wishlists. Anyone can create a landing page for a certain neighborhood, and you can share that with anybody – your own personal Airbnb website. So for example, if Microsoft is having its annual employee conference, people can go to one of those landing pages and book directly from there. People have to look beyond the traditional model of partnerships and see how the Internet’s flexible inventory has changed that.

KW: Is there a place for big business and Airbnb to work together?

MT: Big businesses can have deals with various hotel chains where they get discounts -- maybe we’ll have that structure in the future. Anecdotally, I know companies with employees who travel only on Airbnb -- one reason is because it’s more affordable -- maybe we will formalize that in future. A lot of other tech companies here in the Bay Area and companies in the sharing economy space travel on Airbnb on principle. As pioneers in a sharing economy, we support each other’s companies and believe this is the way the world should work. For example, I use Lyft when I get around the city.

Airbnb is a different kind of travel – the majority of folks who use us travel for leisure. We’ll see if the markets develop for business travel. Those who are using it now cobble the two approaches together – they’ll stay in the hotel, then stay in neighborhoods to be near friends. It’s not a zero sum game – we can be very complementary.

KW: What are some lessons learned that can be useful to those launching new businesses in the sharing economy?

MT: Airbnb lives and dies on the quality of its hosts, the people offering their homes. We have an amazing community of people who are incredibly hospitable not just about their homes, but also about their neighborhoods. If you have a sharing economy business and are not managing the inventory, you’ve got to have an incredible community of people and give them the tools to be the best host possible. The fact that we know people are using Airbnb because they can’t afford to stay in their own homes is important. You need to have an understanding of why people are participating in this service, and that you as the Internet company are giving them the tools to do this.

Keep your eye on the ball in terms of the mission of the company. We hear all the time from those won’t believe us – regarding usefulness of short-term rentals, or that this is not good for the city. You have to maintain a belief in the city and what you’re doing. When we stay steadfast and try to educate others, as well as correct their perceptions, we see incredible change and growth. We’re taking on business in a context that’s not palatable to mainstream America, but we’re reaching the point where it’s becoming mainstream.